Rough, rough week for the Japanese yen, likely suffering at the hands of positive global risk sentiment and possibly on a string of weak economic data from Japan.
Japanese Headlines and Economic data
- Japan M2 money supply comes inline with expectations and previous read of 2.4% growth
- Tertiary Industry Activity declines by -0.3% from the previous month
- Japan machine tool orders down -18.8% from the previous month and worse than previous read of -18.3%
- Japan producer prices rise by 0.6% year-over-year; down -0.6% from the previous month
- Japan’s economy grows 1.4%, the first expansion in two quarters
Major Market Drivers for the Japanese Yen
Global risk sentiment and counter currency drivers were likely the main drivers for price action among the yen pairs, but weak economic data points from Japan may have contributed to the rough week for the yen.
First, global risk sentiment was on a positive lean pretty much for the whole week, despite another round of weak economic data popping up around the globe. The most notable weak economic reports started on Monday with the negative reads on U.K. GDP and manufacturing production, followed by the U.K. and U.S. inflation reads coming in below expectations on Wednesday.
On Thursday, Germany’s quarterly GDP was below expectations at 0.0% versus 0.1% forecast, while the U.S. gave traders a disastrous report on retail sales, as well as weaker-than-expected producer prices data. Oh and Theresa May suffers another parliamentary rejection of her latest Brexit deal, leaving the possibility of a no-deal Brexit on the table.
And on Friday, New Zealand’s manufacturing PMI data showed a slower rate of expansion, while China chimes in with on its inflation data with CPI coming in at 1.7%, below the 1.9% forecast and previous read. Again, these are just the most notable negative reads and events from around the globe.
Japan contributed to the weak economic data train with negative reads on machine tool orders, tertiary activity and the monthly read on producer prices. The quarterly read on GDP was mixed with the quarterly change back in positive at 0.3% versus the -0.6% previous read, but it was below the expected 0.4% forecast. These numbers did somewhat correlate with uniform broad yen weakness against the majors in the one hour chart above, but again, it’s likely the positive lean in global risk sentiment is what had the yen negative against the majors for almost the entire week.
So, with economic data pointing to a global slowdown, what were traders focusing on that pushed risk assets to out perform safe haven assets? The answer seems to be improving sentiment on geopolitical risks from the U.S. Risk-on behavior started as soon as the markets opened up for the week, but picked a bit on Tuesday after comments from U.S. President trump that he may not stick to the March deadline on China tariffs.
And on Wednesday, reports came out that Trump was expected to sign a border security bill that will avoid another damaging U.S. government shutdown. Heading into the end of the week, we saw more positive comments on trade deal negotiations came out from the White House, which are set to continue on Monday in Washington, D.C.
Overall, these two themes have brought uncertainty onto the markets since 2018, so with fears of an all out global trade war and a painful U.S. government shutdown fading away, it makes sense that the Japanese far under performed more against the high-yielders/comdolls versus its under performance against the “safe haven” currencies and the Brexit-weakened British pound on the week.